February 12, 2009

Unlocking the Cash Economy

In its 2004 report on the city of Cleveland, Social Compact detected a residential population that was 24 percent higher than 2000 Census figures indicated. In studying the new immigrant hub of Santa Ana, Calif., for a 2006 report on that city’s disadvantaged communities, Social Compact found an average household income 40 percent larger than that captured in the 2000 Census — a discrepancy Social Compact says can be partially explained by a thriving informal economy many traditional economic models don’t capture.

In an interview with Miller-McCune.com, Social Compact CEO John Talmage attributed the difference in the numbers to his organization’s mining of data from a variety of sources — including tax rolls, utility accounts and credit companies — rather than relying on computer models based on incomplete or unreliable data. The approach tends to emphasize the economic opportunity — rather than the poverty and deficiency — to be found in low-income neighborhoods.

The whole article, by Amy Ramos at Miller-McCune, synthesizes a bunch of other research on economic development in urban neighborhoods. Some of the findings:

The problem isn’t a lack of money, but of investment in infrastructure and education;

A heavily cash-based economy means that you get a lot of cash-based businesses, from “coffee shops and cake makers to tax counselors and home-improvement outfits… ‘family-owned, small, very often cash-based and not financially sophisticated.’”

Also, lots of fast food. Why not big grocery stores, sit-down restaurants, or furniture shops? You usually don’t shop there with cash!

It is really hard to get a large grocery store in a city neighborhood. Not only do you have to buy (and usually demolish) property, you have to fight regulators, politicians looking for handouts, neighborhood groups… Smaller shops (better yet, carts) have a much easier time flying under the radar.

Urban planning is a mess.

You can take this too far, but it’s almost as if the “vice” purchases that pepper city neighborhoods — liquor stores, lottery tickets, fast food, drugs — are a reaction to the excess of cash in these neighborhoods and the absence of “wholesome” outlets for that money. It’s all cash, no capital.

It’s like Deadwood! Lots of money chasing too few services, an absence of law, nothing to spend it on but gambling and prostitution and drugs. When the city gets a bank and a school and trash and fire services and telegraph lines that connect it to the rest of the world (legitimate commerce and infrastructure), the whole town changes.